Nicholas Stuart is a columnist with the Canberra Times.
Nick Stuart has written three books,
Kevin Rudd: An Unauthorised Political Biography;
What Goes Up: Behind the 2007 Election; and
Rudd's Way: November 2007 - June 2010.

Thursday, September 27, 2012

PAYING FOR STUFF

At some point, however, the mis-match between revenue and expenditure becomes just too great.

This column suggests that point was reached long ago . . .

THE GOD OF THE SURPLUS

A good story captures its
audience: it’s believable. Whether a film, novel or TV show, the first necessity
is to get everyone to accept the premise. Inevitably, this means simplifying or
ignoring some of the gritty aspects that surround us in real life. Too much
clutter is distracting. The drive is to reduce the narrative to its crucial
elements.

It’s just the same in politics. Most
voters can’t be bothered with detail; except, perhaps, in areas they
particularly care about. We do, however, follow the grand narratives each side
construct about themselves – and, in particular, which party is best equipped
to manage the economy.

What we really mean by that, of
course, is ‘whose policies will be best for us personally?’ Recently, Julia
Gillard’s promised to increase spending on education and disabled people. This
fits in with Labor’s narrative – the party’s investing in the future. It cares
for those who can’t care for themselves. This is also about building
constituencies that will have a vested interest in the government’s
re-election. But another story is working directly at cross-purposes to Labor’s
narrative. When Tony Abbott’s not harping on about asylum seekers he likes to
move the focus to the economy. He asserts the government is wasting money. Let’s
see.

Perhaps the most obvious place to
start is by examining government revenue as a percentage of GDP. The way Joe
Hockey talks you’d think it’s greater now than when he was a Minister. But
guess what? As a proportion of the economy, it’s lower. The Budget shows quite
clearly that, under Howard, the tax take since 2000 was greater than 25 percent
of GDP. Then, after Labor was elected, it fell as low as 22 percent.This is a low-tax government.

So are the wealthy being slugged
in some other way? Well, no. Tax ‘expenditures’ benefit particular activities
by providing deductions. Capital gains exemptions for housing and
superannuation are examples. The idea is to encourage people to invest there,
but it’s those who are wealthy who benefit the most. How much do such
concessions cost the budget? This year exemptions for housing and
superannuation combined will cost us $67.7 bn. That is more than the entire
health budget ($61 bn), overwhelmingly directed back to the rich.

Health consumes the
second-largest allocation of expenditure – the biggest is social security and
welfare. Ah, perhaps that’s where we can save money. Well, yes, but where
exactly do you want to start? An incoming coalition government would be
unlikely to cut benefits for disabled soldiers, for example. The trouble is
that when you comb through the other major lines of spending it’s difficult to
see where the axe would fall. Income support for seniors ($34.8 bn)? Disability
support ($14.4 bn)? Pharmaceutical benefits ($ 9.6 bn)? Perhaps not. There are
so many good causes. Slashing income support for carers would recoup $ 5.72 bn
and eliminating the fuel tax credit scheme would provide another $5.73 bn, but
no government would be prepared to wear the political pain of these actions. Neither
cut would provide enough money to solve the budget problems. It’s the same when
you look at other areas where savings might be made, such as childcare fee
assistance ($ 4.17 bn). Rather than complain about such programs the Liberal
party has attempted to extend them (often derided as “middle-class welfare) to
the better-off. So the question remains; where would the cuts actually fall?

Last week Hockey told the party
room he expects the mid-year statement to show the budget is at least $20 bn
behind schedule. The implication: he could manage much better. But consider our
growing sense of entitlement, nowhere greater than amongst the well off who
believe their taxes are financing government benefits. If government spending is
really to be curbed, this is an obvious area to attack. However it’s difficult
to believe the Liberals would assault their own supporters and there’s no way
the Nats would permit the cuts. The poorest electorates in Australia aren’t
Labor’s – they return National Party MP’s.

As we age, the cost of health
services is expected to grow by 4.5 percent over the next three years. How
would a Liberal government stop this increase? By refusing to treat people over
92 or by increasing the Medicare levy? The Opposition could save just under $5
billion by completely scrapping the Aid budget – but even a drastic action like
this would merely provide breathing space for a couple of years. Soon the old,
dangerous mismatch between expenditure and revenue would reassert itself. Costs
are growing faster than revenue – particularly in health. And the sense of
entitlement is nowhere greater than amongst some of the (coalition) supporters
who are most vocal about the need to slash spending.

The rumour is the coming mid-year
financial statement will further slash defence spending. Most of the big
programs are already scheduled for the ‘out’ years. But when the government
announces a faster drawdown in Afghanistan, what will the coalition say? Would
they keep the troops there longer? What if Stephen Smith announces we’ll make
do with a smaller submarine? Abbott will make a lot of noise about it – but he
won’t commit to overturning the decision. He knows he can’t afford to.

I suspect the opposition will be
very keen to capitalise on the pain from any further attempts to cut spending.
It assumes Labor is so on the nose already that there’s no way this government
can claw its way back. The situation might be different if the public could be
bothered to do some basic maths. It’s evident that nobody’s sums add up.

Labor’s problem remains centred
on the sales team. Despite Labor’s recent ‘bounce’ in the polls, the reality is
that politicians of both persuasions fail to inspire. Wayne Swan has proved himself
completely incapable of linking Labor to our economic miracle. Lovely bloke;
utterly out of his depth. Coupled with Julia Gillard’s on again, off again
performance style, it’s amazing that this government even appears to be still in
the game.